AVEVA Group Plc

AVEVA Group (LON: AVV) is an FTSE 100 listed engineering and software company, which provides industrial software to shape a sustainable future. The Company connects people through a common cloud platform, AVEVA Connect.

On 7 July 2021, the Company will hold its Annual General Meeting.

Rationale for Valuation – Hold at GBX 3,481.00

• AVEVA achieved double-digit revenue growth in H2 FY21, with a substantial scope of digital penetration in the industrial world and significant growth opportunities ahead.
• Positive start to OSIsoft ownership and Integration.
• Trading has started well in FY22 on a constant currency basis, with an exciting long-term growth outlook.
• The debt/equity ratio recorded by the Company in the past two years was considerably below the industry median. In FY21, the debt/equity ratio was 0.15x.
• From a technical standpoint, 20-day SMA (GBX 3,291) supports an upside potential.

Key Risks

• The Company operates in a competitive and complex technological environment, which requires continuous investment.
• The Company is also exposed to Covid-19 related risks, which may cause a delay in product development and increase the risk of contract losses.
• The performance can be significantly impacted by the principal risk of talent acquisition and retention, cloud strategy and SaaS security, Digital transformation agenda, sustainability, regulatory compliance, dependency on cyclical markets, disruptive technologies.

Financial Highlights (for the year ended 31 March 2021 (FY21), as on 25 May 2021)

(Source: Company Website)

• The Company saw double-digit revenue growth in the second half, with the completion of the OSIsoft acquisition. Moreover, AVEVA business and OSIsoft have delivered double-digit revenue growth in H2 FY21.
• On a constant currency basis, the Pro forma Annualised Recurring Revenue (ARR) surged by 8.6% YoY to £704.8 million.
• During the financial year, the Company made strong operational and strategic progress.
• It remains in strong cash and financial position, with cash and treasury deposits of £286.9 million.
• The Board proposed a final dividend per share of 23.5 pence, reflecting a slight increase from the previous year.

One Year Share Price Chart

 (Research Done by the Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

In the AVEVA and OSIsoft business, the organic currency-neutral growth rates are expected to be the same, compared with the long-term trends in FY21. The outlook for FY22 stays in line with the Board's expectations. In FY21, the order pipeline was solid, supported by several large contract renewals and efficient digital demand generation. Further, the Company achieved solid growth in the second half of 2021, while the transition to Subscription continues at pace. With the completion of the OSIsoft acquisition, the Company will enhance the ability to accelerate the digital transformation of the industrial world. Meanwhile, AVEVA stayed in a robust financial position with a strong balance sheet and ongoing cash generation. The stock made a 52-week low and high of GBX 3,014.63 and GBX 4,302.95, respectively.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” recommendation for AVEVA Group at the current price of GBX 3,481.00 (as on 27 May 2021, at 10:00 AM GMT) and will recommend fresh buying at the right time.

Pets at Home Group Plc

Pets at Home Group Plc (LON: PETS) is a retailer of pet food, pet products and pet-related services.

On 8 July 2021, the Company will hold its Annual General Meeting.

Rationale for Valuation – Expensive at GBX 465.20

• Improved growth outlook across the UK pet market.
• The Company is trading near a 52-week high, and EV/Sales and Price/Cash Flow multiples are significantly higher than corresponding multiples of the Speciality Retailers industry, reflecting overstretched valuations.
• The Company has lower liquidity with a current ratio of 0.80x, reflecting insufficient current assets to pay its short-term obligations.
• From the technical standpoint, 14-day RSI stood at ~67.88, which means the stock price could decline in the short term.

Key Risks

• The push towards online sales has increased the variable costs, such as warehouse picking and delivery costs.
• The Group is also exposed to operational risk arising from a loss of customers with increased competition and poor operating performance due to climate change.
• In the near term, business operations can also be impacted due to Covid-19 pandemic led restrictions and uncertainties.

Financial Highlights (for the 52-week period to 25 March 2021 (FY21), as on 27 May 2021)

(Source: Company Website)

• Total Group revenue increased by 7.9% YoY, with an increase in retail revenue of 8.7% YoY.
• Group like-for-like (LFL) revenue surged by 8.7%, with an increase in retail LFL of 8.8%, Omnichannel revenue of 71.7% and Vet LFL revenue of 7.9%.
• Group underlying PBT was ahead of guidance, supported by growth in H2 Group underlying PBT of 22.0%.
• The Company witnessed strong cash generation, with an underlying free cash flow of £67.4 million and net cash (pre-IFRS16) of £1.4 million.
• Final dividend per share increased by 10% YoY to 5.5 pence. Therefore, the total dividend per share rose by 7% YoY to 8 pence.

One Year Share Price Chart

 (Research Done by the Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

For the 53 weeks to 31 March 2022, the Company expects Group underlying pre-tax profit to be in the range of £120-130 million. The Company saw strong underlying growth in the second half, with new customer registration and strong growth in subscription customers. However, the Company remains uncertain in the near term due to the emergence of new variants of the virus. Further, it is investing in online infrastructure to meet the changing market dynamics. In the future, the Company may face emerging headwinds and cost pressures. The Company is presently trading near the 52-week high, raising doubts at the upside potential at the current price level. The stock made a 52-week low and high of GBX 220.00 and GBX 488.00, respectively.

Based on the factors as highlighted above, we believe the stock of Pets at Home Group is “Expensive” at the current price of GBX 465.20 (as on 27 May 2021, at 10:05 AM GMT), with support from few catalysts needs to be evaluated at a later stage such as decent prospects of London market and improved investors sentiments. 

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peers/ Industry information have been taken from Refinitiv.

*Dividend Yield may vary as per the stock price movement.

Disclaimer

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